Ep. 7: Digital Transformation the Volkswagen Way – Falk Bothe

It’s not about the old vs. the new business –  it’s just business. Join VANTIQ CMO, Blaine Mathieu, and Falk Bothe, Director, Digital Transformation Office at Volkswagen AG as they discuss thoughts on leadership, change management, and the real-time digital transformation of Volkswagen AG.

Transcript:

Blaine: Hello everyone and welcome to the real time enterprise channel on VANTIQ TV, our video and podcast series of interviews with thought leaders and practitioners in digital transformation and the real-time enterprise. My name is Blaine Mathieu and I’m Chief Marketing and Product Officer at VANTIQ. Since these episodes are pre-recorded, we won’t be taking live Q&A, but you can reach either myself or the guest by sending a note to realtime@vantiq.com and we will be more than happy to follow up.

Blaine: Joining me today is Falk Bothe, Director Digital Transformation Office at Volkswagen AG. Falk has more than 27 years of experience in the field of digital transformation, organizational development consulting, product development, sales, and project management, much of it in ever-increasingly responsible roles at Volkswagen. In addition, he has a constant presence on Twitter, a prolific author, and speaker on all things digital transformation. Thanks so much for the time, Falk.

Falk: You’re most welcome. I’m happy to be here.

Blaine: Very good to have you. I’ve been looking forward to this conversation for quite a while. In addition to everything I just stated, you’re quite a world traveler. So, I’m glad I could pin you down.

Falk: We found a spot where I’m actually in the office!

Blaine: Amazing! I’d love if you could tell us more about yourself, your role at Volkswagen, and your path at Volkswagen that eventually brought you to the Digital Transformation Office.

Falk: Yeah sure Blaine! Thank you very much.

I started with Volkswagen 17 years ago so I’m kind of still the new guy. [Laughter] At Volkswagen, you usually get born into the world. I started with Volkswagen financial services as my background is in banking. I started in fleet customer department. I started to develop products for fleet customers and private customers and then found my way to the Volkswagen consulting unit which is internal consulting where I did six years in business consulting, change management, strategic development, and digital transformation, already.

We did a lot of process improvements, which in most things, most of the time meant getting paper processes wiped out into digital processes. Two and a half years ago, I started to work for Mr. Jungwirth, the group CTO that came from Apple to Volkswagen and practically built up his organization for digital transformation within Volkswagen.

Blaine: Very interesting. I definitely want to talk to you more about what Volkswagen’s own path is toward digital transformation and how you’re leading that. Before we get there though, let’s step back a little bit and talk about DX in general.

What does digital transformation mean to you? It’s a term that so many people are talking about and using these days. It’s almost lost its meaning, to some degree. What does it mean to you?

Falk: First of all, we have to differentiate between digitalization and digital transformation. This is quite important because digitalization or Industry 4.0 is something that, for example, Volkswagen or the automotive industry in total, has done for the last 40 years. Everything that’s replaced by robots, for example, or by digital processes is digitalization. So, we’ve done that: video communication, putting robots into production, wiping out paper processes. That’s already happening.

Digital transformation, in my opinion, is something more. It’s a transformation of the whole business model or the way we work. For example, in the past, if you wanted to have a meeting, you had to meet everybody in person. Now, if you want to collaborate, you could work in a document then save it to a specific folder or if you work with G suite or Office 365, other people can work on the document around the world, not depending on time zones, being there in person, and so on.

Transformation, to me, means that you can work anywhere, anytime, with whomever you need to for the specific project. And, it means that you make use of the digital possibilities that we now have to re-transform your business and offer your customers services that better fit their needs and go beyond the hardware product that you deliver.

Blaine: Would you say that digital transformation tends to be more about creating or enabling new business models, driving new streams of revenue, whereas digitization is more about efficiency? Is that a fair characterization?

Falk: Yes. That’s true. Digitization, to me, is just making what you do more efficient so that you get your resources to do other things. For example, if I free the employees from paper processes and really long decision processes, everything, and replace this by machine learning, algorithms, or a computer, then these people have more time to really care about the customers, to really talk to them, or to develop products, other creative stuff, which we, humans, are better and abler than machines are.

Blaine: Now, given all the people you talk to who are undergoing or trying to drive digital transformation initiatives, maybe leaving aside Volkswagen for a second which we will talk about, how successful do you feel these initiatives are and where are we in the transition toward a true digital transformation?

Falk: I think what we can agree on, in total, is that everybody accepts that digital transformation or digitization, as the first step, is really necessary to evolve and to stay in business. I think this holds true for every part of the society, not necessarily just the corporate world, but also the governance world.

Even when cities are thinking about how to make use of the data they collect from their specific departments to offer their civilians, their inhabitants of the cities, better services as a community, I think then we are in this stage where, as I said, everybody has accepted that now with a digital technology, the transformation is really needed.

It’s not necessarily new business models. This is also true because, due to technology development, new business models are suddenly possible that have never been possible before. Like Uber or Airbnb, you can make use of other people’s assets and earn money even without owning them just because you are provided a good platform or a good software.

On the other hand, the possibility of collaborating between multiple companies is now much easier than it has been the last years because you can make use of the digital technologies that we have. In terms of where we stand, I think we are past the stage of just accepting that it’s necessary.

We are also seeing good improvement on some topics that we are working on. For example, the recreation of the office space that we have in being more oriented on the really specific needs that the employees have on collaboration, focus rooms when you need, meeting rooms giving space for creative collaboration for service design and so on. On the other hand, what we also see is that the service market is really expanding year by year. More and more services are being created and customers can make good use of it.

Blaine: That’s an interesting observation that I hadn’t drawn the direct connection between the rise of the service economy and everything as a service and digital transformation. But you’re right. I think that’s a big element of a lot of digital transformation which is going on is the movement to an ‘as a service’ economy, whether it’s cars, homes, or anything as a service.

This is probably a good segue into Volkswagen itself. I think our listeners would love to understand more about specifically what is going on at Volkswagen in terms of digital transformation and what initiatives you are driving.

Falk: So what we do is, of course we want to transform as a company, so getting our processors more digital, giving the best employee experience that we can have in a digital world, creating the offices that are really providing the space and the room for creation, for the development of the services, but also the employee satisfaction that employers would like to work for us and come to Volkswagen. This is one part of the of the story.

The other part is, of course, we’ve been building cars for now over 70 years and we need to digitalize our products. So, we’re going to get our cars connected with the internet so that we can, of course, provide services within the car, around the car, or at the car. At the moment, you can already get packages from Amazon or DHL delivered to the trunk of your car, if you would like to. There’s just one example where we develop services that have never been possible before.

In addition to that, we think beyond the car. So, we want to create services that add on to just getting from A to B so that you get an overall ecosystem of mobility and these services needed that you need while being in transport.

Baine: So, becoming the transport nervous system layer in smart cities, for example. Is that what you’re talking about?

Falk:  This is one part of the story, of course. But, we are developing self-driving vehicles, for example. We are creating ride sharing, right hailing systems with Moia. We are testing this right now in the city of Hamburg and Hanover. We gain great experience there from the customers and it’s good accepted service, at least, if we look at the feedback that we have from the customers that are already using this in this test phase.

From there, we want to move on and create mobility as a service in the future for our customers.

Blaine: Very interesting. Now, when we were talking earlier, you were talking to me a little bit about your personal journey at Volkswagen, how you happened to become, now, the director of the Digital Transformation Office. How that office came into being, I think it would be interesting to hear more about that story.

Falk: The Digital Transformation Office is an answer to the needs that have been there while building up the transformation unit, in total, at Volkswagen. When Mr. Jungwirth joined us and he came from Apple, he needed someone who knew the organization. I first acted as his executive assistant/chief of staff of the organization. At one point in time, the tasks that came up like handling the digital committees with the board members, communication, change management, externally/internally, developing programs to engage every employee, and on the other hand, developing the strategy for the transformation, division, and then you are tracking this and seeing all the brands interact with that.

This job became so huge that the idea of the digital transformation office was born as one person could not handle this alone. So, we came up with the idea of the transformation office to have a mixture of program management and change management and organizing all the committees out of one hand from one department. This is how the transformation office was born.

From the idea to actually being implemented, it took less a part of one year. We were created 1 1/2 years ago and have been quite effective. For example, we have a digital transformation simulation where we bring people from all over the world. We’ve been to China, U.S., England, and to several parts of the company. We let them live through one hundred thirty years of automotive industry development so that they can really understand which impact, which industrial revolution our technology had on the automotive industry up to the digital transformation to really bring them to the same level, the same understanding, and the same speech, language, and vocabulary so that we then can develop the right products and get to the right processes after that.

Blaine: Really interesting! Is this an online simulation? How does it work?

Falk: The funny thing is, although it’s called “Digital Transformation Simulation”, it’s quite analogue. We do it with label. We let the participants build cars in the first step. We simulate the age of manufacturing where they try to be Gottlieb Daimler or Benz, inventor of the conveyor belt, and implementing this in the automotive industry up to developing software and services.

We even simulate developing software and services. People that have never talked about programming or service development themselves, we let them simulate this. Of course, they really don’t need to program something themselves or do coding because this is to let them do some tasks that are similar in terms of what kind of parts of the brain you need to be creative. But after that, they really have a feeling for how difficult it is not only to build a car, but to combine it with the right services and software.

Blaine: Do you find that your guests have an aha moment or something they take away from this experience that is surprising?

Falk: It has two parts. We have all kinds of participants from every age. The so-called “digital natives” understand that building a car is not so easy as it may seem as some competitors right now experience. I don’t want to name names.

This is one part of the story and the other one is that the hardcore petrol heads, they really understand why digital transformation services and the whole ecosystem idea is really necessary to stay in business or even to make better business.

The aha moment, there are actually two. One is the integration of the conveyor belt into the automotive production which is fascinating because we have participants that have been with a company for 20 years who said afterwards, “Well I know that in theory a conveyor belt is working, but now I really experience it myself.” This is one part of the story.

The other one is when we implement the software and service development where they actually see and feel that less people build cars and more people are creating services and software. They can actually see this because it shows how many participants in this nation are doing this.

Blaine: Really interesting. That sounds like a great experience.

A couple of times now you’ve mentioned change management as being key to the challenge of digital transformation. I know change management was part of your experience and how you came to be in the Digital Transformation Office. Talk to us a little bit more about how critical change management is to DX initiatives.

Falk: So, I think if you really want people to work on the new things or on digital transformation, you need to help them understand what it is really about and how they can benefit from what’s happening.

In my experience, people don’t resist change. They resist loss. If you say to them, “Right now, you don’t have to do this anymore. You have to sit in another office, with other colleagues, and do Skype conferences. You are not allowed to use the phone anymore or whatever.” The implementation of new software, new processes, new things to do, or letting people not do what they have done for 20 years is a loss.

You really need to explain what they are gaining in adapting to the new challenges, new technologies, and new collaboration system and how they can implement the experience and the knowledge that they have gained over the last 20/25 years into these processes and why it’s really necessary that we have this knowledge. This is why I think that change management is a very critical part of the transformation process.

It’s not just saying, “Hey guys. We’re digital and we’re done.” Just the announcement, itself, will not transform the company. You need to have a strong vision which people can follow but then you need to explain how this vision can be achieved. And after that, you really need to let action follow your words. Because, like the Chinese say, “Vision without action is daydreaming.”.

We’ve tried to really let people experience. This is why we came up with the simulation of the digital transformation. We let people experience what this really means and then they can discuss what this means for the daily business. After that, they have a better understanding and a better – let’s say – gut feeling in really buying into the transformation because they see it’s something that we already have done for the last 20 years.

Now, it’s just called digital transformation because the digital part, the technology, is getting a stronger part than it had in the past. But, it’s nothing dangerous. We’ve also showed them and we show the figures that every transformation, every industrial revolution in the automotive industry has, in the long run, produced more jobs than there were before. Most people fear in digital transformation that they will be replaced by machines or robots. I think that we will see that some jobs are not being done anymore, funnily enough, not in the production, but in knowledge-based jobs.

For example, in accounting or data analysis, if you have a machine and program the algorithms, that can do that much faster. But, you need the human afterwards to draw the conclusions or evaluate the data. We show them with the figures and what we have experienced that there will be changes in what we do, but we actually will create more jobs in the future.

Blaine: So, are you taking all employees eventually through your simulation program or is this just something for executives and the high flyers?

Falk: Believe me, I would love to, but we have 640,000 employees all over the world and 120 production facilities. So, we started with a management level because I think the management level has to show confidence in what’s happening right now, and they have to show this to their employees. They have to really become the leaders that lead through the digital transformation.

But, we also do workshops of the digital transformation simulation throughout all hierarchies. For example, when we went to Chattanooga or to Volkswagen of China, we had both management and employee level attendees. So, it makes no difference. But, in this case and as a change management consultant, I usually don’t say this, but this is, in one part, a critical top-down process.

Blaine: So, to change gears a little bit, one of the themes of VANTIQ TV is this notion of the real-time enterprise or real-time business as becoming central to digital transformation. Does that notion resonate with you? Is Volkswagen trying to become a real-time business, more of a real-time enterprise?

Falk: Well. I think we actually are. If you order a car at the moment, then the whole process is being started and all the material is being ordered by suppliers and delivered just in sequence to our production facility. If you were to order a car, material would be ordered and so on. So, we are a real-time company in terms of facilitating all of our production processes.

What I think is happening right now, at least what we are working on, is implementing this attitude towards the services we want to develop so that we can get in direct customer contact or in contact through other dealers that we work together with to create a better customer experience all over the world for not only Volkswagen, but the folks who are group customers, customers of the twelve brands that we have within the group.

Blaine: I think you’re right. The notion that we talked about earlier of everything becoming ‘as a service’ is very central and highly related to this concept of becoming real time because services are delivered in real time. So, as you enable transportation as a service in whatever form Volkswagen does that, they are becoming more and more a real-time business.

Falk: Yeah! So, with our ride-sharing or ride-hailing service from Moia, if you are in Uber and want to use the ride-hailing service, you don’t want to wait until next week. You need it now.

Blaine: As Uber has shown us. And now, we’re all responding and becoming very agile from that perspective.

Falk: Imagine in the future, if you have mobility as a service. Imagine that. Usually on a day to day basis you just need to go to work. And so, you have a vehicle that transports you to work and maybe with other colleagues so that you can start a discussion or a meeting. Or if you have time and it’s good for you to make some savings, you can share the ride with other people. It’s already possible today but then an autonomous drone vehicle.

But then, there’s a special day. You have your wedding anniversary and you want to take your wife out to opera and dinner before and you get yourself picked up by a self-driving luxury car; being driven to the opera with extra information on the line up of the stars that are singing. There’s good music. You have champagne in the car. You don’t need to bother if you’re driving back because it’s autonomous and you invest your mobility service on this special occasion with your wife because it’s really special to you. This is actually what I dream of.

Blaine: [Laughter] Absolutely. Absolutely. Well, to make those dreams a reality, we talked a little bit about leadership and I know, besides talking about digital transformation, you also write and comment a lot about the notion of leadership in general. I read from your personal website that you are a rock acrobat and West Coast swing coach and you have actually learned a lot about leadership in your time as a West Coast swing coach. First of all, tell us what that is because I’m not sure all the listeners might even know what Rock acrobat and West Coast swing coach are and then their relationship to leadership.

Falk: I started rock acrobatic dancing when I was almost 9 years old. I’ve done competitive dancing for 25 years. Rock acrobatic is a form of swing dancing. It’s really fast and it’s combined with lifts and stunts like the Americans know from cheerleading, for example, but only with one partner. So, it’s just a guy and a girl usually dancing together. It’s now already known in the US and in many other countries abroad and there are world competitions every year. It’s not a major sport, but it’s a major dance sport, I would say.

West Coast swing is what I adopted when I stopped doing competitive rock acrobatic dancing and doing something more fitting to my age. West Coast swing, I think, is quite known in the U.S. because it’s originated from there. I looked for something where I could dance more with my wife and have some fun.

What I learned about leadership in dancing, and this is also something I strongly believe in, leadership, is action. It’s not a role. You need to really do something. Just because someone sets you into position, or dancing just because you are a dance partner, this doesn’t mean you lead.

In dancing, there are three principles. First of all, you need to be able to move your body yourself, which is not so easy as it may sound. Second, you need to move yourself to music. And then, you need to move your partner to music. The most important thing for a leader that you can do is make the follower shine. So, the only job you have as a leader in dancing is to make your follower look good.

How does this translate into business? If I’m a leader, I see to it that my people can do their job, that they shine, that they really are on the stage, in the spotlight, that they get the attention they need to do the projects they need, and that they get the respect and get seen as the proper people to do that – that they get value for their work.

This is what I try to do on a daily basis. I don’t need to be on the stage myself. I’ve been there and this is why somebody has said you are fit to be in that position. But now, it’s time that the people who are really doing the project, what they are on the stage.

I think leadership is about seeing what your people can really do or your peers can do because it’s not necessarily you being in a role of authority, but you could be someone just on a team. So, if you lead, try to see what people can do, what their talents are, and push them or help them get there. Not necessarily pushing, but creating a room for them so that they really can let their talents flow and provide a good contribution to the project.

Blaine: Thank you. And obviously very relevant to, as you said, driving these DX initiatives throughout organizations.

So it’s amazing. I don’t think I’ve ever gone 20 or so minutes into one of these conversations and we have not talked about technology, really, at all other than the general topic of digitalization. I think that’s very, very revealing that the fundamental challenges that a lot of organizations are facing in digital transformation, it’s not about the technology. Technology is just an enabler. Having said that, are there any elements of technology that you’re particularly interested or focused on at this point?

Falk: Personally, of course, I’m interested in several parts of technology. Of course, it’s necessary to keep up to date with what’s happening right now. But what really intrigues me the most is to make use of quantum computing in combination with artificial intelligence. Volkswagen is the first of the automotive companies that is tapping into the possibilities of making use of quantum computing.

For example, to analyze big amounts of data to really answer questions that have never been answered before or to even calculate several processes or scenarios with the help of quantum computing, we implemented a project where we make use of quantum computing to develop a better battery to simulate how batteries of the future can help us with the electrification of cars.

I think this is one of the most fascinating projects that our CIO, Martin Hofmann, is promoting right now with our data lab in Munich. These are the guys who work on the crazy, nerdy stuff that really help us develop the technology that we need to create sustainable mobility in the future.

Blaine: Very interesting. I think most listeners might be surprised to learn that some practical applications or projects related to quantum computing are actually starting to be built. I think the perception is it’s mostly just a science experiment phase but to hear that it’s not just being used in university labs but Volkswagen is actually trying to implement this and in some real-world context is a bit startling to me, to be honest.

Falk: Yeah. I think it’s unique. As I said, we need to thank Martin Hofmann and his team from the data lab to really implement this because it’s one thing to have the technology, but you also need visionary types like Martin Hofmann and his team to really implement this and have the guts to try this.

I think it’s really good for Volkswagen. We learn a lot and I think, right at the moment, we are the only automotive company that has a project with this.

Blaine: Very, very impressive. Well, we’re getting close to the end. I generally ask my guests if they have some controversial opinion or maybe something where most thinkers in business or technology are thinking one way and maybe you’re a bit of a contrarian. Is there any topic like that where you’re thinking maybe a little different than the crowd?

Falk: Yeah there’s one. I think I’m not alone with the opinion that I’m voicing in a second, but the most common mistake I think you can make in digital transformation is talking about the old and the new business. If you want to transform a company, you need to really respect what has been done in the past because the company that you’re in is has been made by the people who worked here for 20, 25 years, or 35 years in some cases.

So, actually, you’re using the money and the resources that they have brought in to create other, new, or more advanced technologies or new services. In the example of Volkswagen and the group, they have existed for over 70 years. And over the years, some brands were added up to the Volkswagen group to make this a fantastic company. So, I never talk about old and new. It’s just Volkswagen group.

We always have developed new things and new services, but it’s just one company and it’s the people that make the difference. To talk about old and new would be not fair to the ones who have been here for a long time, and it also divides people up. Transformation is about uniting together, internally and externally with the right partners, to create the services that will help us have this company even longer and start into the next decade or the next century, for that matter.

Blaine: Yes! Well, Falk, I think that is probably a great place to end some great advice for business leaders, for folks that are driving digital transformation. I really appreciate the time you spent with us today. I think the listeners are going to find this very interesting to learn what you and what Volkswagen are doing. So, thanks, again, for joining us.

For those that are interested in hearing more of Falk’s thoughts, you can follow him on Twitter at @faulkbothe and check out his personal website at falkbothe.com or .de. Feel free to reach out to me anytime at realtime@vantiq.com.

Thank you!

Falk: Thank you, Blaine!

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